What follows is a statement on Governor Perdue’s State of the State Address from the Budget and Tax Center

RALEIGH (Feb. 14, 2011) – Gov. Perdue signaled this evening in her State of the State address that she will rely primarily on deep cuts instead of modernizing North Carolina's revenue system to address the state's budget shortfall.

Instead, she has chosen to propose corporate tax cuts. Evidence-based analysis shows that reducing the corporate tax rate will create few jobs in North Carolina and cut state revenues by hundreds of millions.

Also, cutting $2.2 billion from the state budget will cost thousands of public and private-sector jobs.

There is another way forward, one that can address the state’s fiscal challenges for the long term by modernizing our revenue system and raising the revenue needed to protect critical public investments.

On the New Shortfall and the Numbers Game

The late revision last week of the state budget shortfall number downwards to $2.7 billion – and again tonight down to $2.4 billion – framed much of the State of the State and the Governor’s budget decisions. In setting out this new figure, it is important to clarify what it does and does not mean for the state’s budget outlook next year and in future years.

North Carolina’s budget next year, even with last week’s improved revenue outlook, falls $4.5 billion short of what is needed to rebuild service levels back to 2008 levels. Getting back to pre-recession levels of services would require restoring nearly $1.8 billion in cuts to public schools ($800 million), community colleges and universities ($300 million), health services ($500 million), and other valued public structures.

The State of the State was riddled with numbers that have serious consequences for North Carolinians and the state’s economic recovery.

Cutting the corporate tax rate from 6.9 percent to 4.9 percent will cost the state roughly $400 million in revenue without creating many jobs. State corporate income taxes form a tiny share of the cost of doing business. More important to improve business productivity and profitability is having a skilled, educated workforce, high-quality infrastructure, and locating in a place that promises a desirable quality of life for workers and their families.

Cutting $2.2 billion from the state’s budget will result in thousands of public- and private-sector job losses while undermining the very public structures that will pave the way to economic recovery. Governor Perdue’s made a laudable promise to protect public schools and create new opportunities for soon-to-graduate students, but cutting an additional $2.2 billion from the state budget will compromise the investments in higher education, health, and public safety necessary for the state to recover from the Great Recession.

Governor Perdue is wisely moving quickly to leverage federal dollars to implement a Capital Access Program that will help small businesses in North Carolina grow and create jobs. The $46 million in federal Treasury dollars will help small businesses gain access to $800 million in private capital they need to expand their businesses and hire workers, a step that will help put North Carolina on a path to a jobs recovery.

Most troubling is that Governor Perdue has failed to address the driver of our budget challenges—the collapse in revenues brought on by a weak economy and an outdated revenue system. Instead, Governor Perdue focused on misguided corporate tax cuts that will do little to create jobs or put the state on a path toward long-term prosperity.

On Sound Fiscal Stewardship and Leadership

North Carolina needs leadership on the state budget. Fixing this problem for the long-term will require modernizing the state’s revenue system and sustaining the state’s economic recovery.